“Fortunes are made by buying right and holding on.”
“Mr. Garrett’s first goal was to increase his capital in order to increase his power to help others. Having no children he was not heir-selfish. He decided the way to increase his savings fast enough to count at his age was to invest in a fast-growing company. He began his search for one that met these four criteria:
1. It must be small. Sheer size militates against great growth.
2. It must be relatively unknown. Popular growth stocks may keep on growing but too often one has to pay for expected growth too many years in advance. Probably to meet this criterion the stock he wanted would be traded over –the-counter rather than on any stock exchange.
3. It must have a unique product that would do an essential job better, cheaper, and/or faster than before, or provide a new service with prospects of great and long-continued sales increases.
4. It must have a strong, progressive, research-minded management.
“To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” Patience is the rarest of the three.”
“There is another reason why professional investors, except those managing discretionary accounts, should de-emphasize market timing. That is because even if the market forecaster is right, he seldom can persuade others to act on his opinion. No one intends to buy stocks at the top of the market, or to sell them at the lows. On the contrary, bull market highs are made when the outlook for still higher prices is most broadly convincing. Conversely bear market lows are made when the likelihood of still lower prices seems overwhelming to the preponderance of reasonable, well-informed moneyed men. Since bull and bear markets are to a considerable extent manifestations of changes in mass psychology it is fatuous for anyone to believe that he can persuade a representative group of investors to sell stocks when that mass psychology is bullish, or to buy stocks when it is bearish. The wise professional, who understands this, concentrates on stock selection. Most investors are far less emotionally involved in deciding whether the market is going up or down. To clinch the argument, it is readily demonstrable that far more money can be made by good stock selection than by good stock market timing.”
“In a bull market correcting mistakes often means taking profits. But when we do so let us not kid ourselves we are making money. The truth is we are acknowledging missing vastly bigger opportunities and incurring a capital gains tax liability to boot.”
“Fortunes made that way are what my old friend and colleague Dwight Rogers calls “triumphs of lethargy.” In the same vein Decatur Higgins of Scudder, Stevens & Clark quotes a former associate as noting sadly, “I suffer form an absence of inertial.”
“Because every stock buyer wants to make money, it is almost a truism that nothing kills a money-making opportunity faster than its widespread popularity. This applies just as surely to growth stocks as it does to Florida real estate. What shall it profit a man to buy a sock whose earnings quadruple in the next ten years if he has to pay for four times the current earnings now?”.
“Incontestably, growth stocks are highly attractive if they continue to grow as fast as or faster than they have been growing and if buyers continue to expect them to continue to grow as fast or faster and if the rate at which future earnings and dividends must be discounted does not increase materially.”
When you pay in advance for the earnings of a stock to triple or quadruple, as you do when you buy it at three or four times the price-earnings ratio of the Dow-Jones Industrial Average, you should foresee not only the growth you are paying for but further above average growth beyond that. This means that you must evaluate the competitive status of the company not as it is today but as it will be six to eight years from now, when it is three or four times bigger.”